In 1997, Quebec introduced the C$5-a-day daycare, heavily subsidizing existing daycares. The fee was increased to C$7 in 2004. While it seems admirable to provide affordable daycare for young parents, this policy is a disaster, and even more so than simple economics would have predicted.
First the obvious economics: with such a drastic reduction in price, the quantity demanded increases tremendously. And it did. People who had found other arrangements, for example within the family, do not to bother the grand-mother anymore if it costs only a few bucks a day to put a child in daycare. Parents who did not even need daycare now find it convenient to get free time at little cost. Now, was the supply subsidized enough to meet the demand? Of course not. One could think that the under-supply would be only temporary, in particular as new daycares need to be certified, manpower needs to be trained. But a decade after the introduction of the policy, the government is still struggling to provide anything near what demand would require, and at a huge cost. Given that there is rationing, a black market has evolved, or something that resembles it, as daycares bend rules to get closer to the market price. But the government is fighting it in the courts.
Now the less than obvious economics: the policy in Quebec is that everyone has equal access to public services (health care, schools, daycare, etc). Given that there must be rationing, who actually gets to use the subsidized daycare centres? Those with higher incomes, that is those who could have paid for the daycare anyway. Keep in mind that childcare tax credits were scrapped with the introduction of this programme. And this study finds that while female labour supply increased significantly, child welfare deteriorated in terms of health, behaviour and skills.
And to illustrate the economic literacy of policy makers, the Quebec minister in charge of families said Saturday that the daycare fee would not increase, as there are still families that are looking for a spot. Even the simple concept of demand and supply is foreign to her.
PS: Speaking of cold places, a story on a man that is immune to cold temperatures.